Stop Renting Your Savings!

Your savings is costing you

That’s right, you heard me.  Stop renting your savings.  If you have debt and have money in savings, you’re renting your own savings.  HOW SO?  Think about… the interest being charged to you on your credit cards and other debts (home loans, student loans, car loans etc…) are higher than the interest your’re “earning” in savings.

How Interest is Calculated:

The way interest is calculated on your savings account, credit cards, loans balances etc… are all the same.  There’s a daily calculation ran every night at midnight based on the BALANCE.  So, if you’re being charged a higher interest rate on your debt than what you’re making in savings, you’re renting your savings for not paying of the debt.

 

EXAMPLE: Let’s compare…

SAVINGS

$5,000 X 1% = $50.00 a year

$50.00 a year / 360 days = $0.13 a day earned interest ($0.138 to exact)

CREDIT CARD

$5,000 X 12.99% = $649.50 a year

$649.50 a year / 360 days = $1.80 a day charged interest ($1.804 to be exact)

SO… AT THE END OF THE DAY

You still paid $1.67 ($1.80 – $0.13)

$1.67 a day = $50.10 a month

$.167 a day = $609.55

HOWEVER

If you decide to move the $5,000 from savings and pay off the $5,000 credit card, you wouldn’t be paying any interest.  You wouldn’t be earning interest either but it’s far better than paying $1.67 EVERY. SINGLE. DAY.  But, to leave your money in savings, you’re paying interest to have it there.  And at what interest rate are we paying the bank to keep our savings in our savings account??? The difference in what we’re earning (1%) and what we’re being charged (12.99%).  In this example, we’re paying 11.99% to the banks to rent our savings.  STOP IT.

NOW…

Why don’t we just take the $5,000 in savings and pay the $5,000 credit card off?

ACCESS!  Or there lack of.  Credit cards are LIMITED on the access to the funds available when it comes to pay certain bills (home loans, car loans, other credit cards etc…) and when it comes to gaining immediate access to the cash without paying a cash advance fee and being charged an even higher interest rate.

THE SOLUTION

The Almight “Line of Credit”!

Lines of credit (LOC) are FAR MORE FLEXIBLE when it comes to accessing your available funds compared to a credit card.  LOC are still limited, like credit cards, when it comes to paying certain bills (home loans, rent, car loans, student loans etc…) HOWEVER, you always have access to the cash.  LOC DO ALLOW transfers of available funds to checking WITHOUT incurring cash advance fees.  Most LOC also allow ATM access without any additional fees as well.

NEXT WEEK

We’ll discuss how moving other debt balances to your LOC and how to properly use your LOC as your new checking account?  Crazy, right?!  I thought so too at first… but now I see why it makes sense.  And my objective is help you understand why as well.  Until then… Invest well.  Live well.

Your savings is costing you

Stop Renting Your Savings!

That’s right, you heard me.  Stop renting your savings.  If you have debt and have money in savings, you’re renting your own savings.  HOW SO?  Think about… the interest being charged to you on your credit cards and other debts (home loans, student loans, car loans etc…) are higher than the interest your’re “earning” in savings.

How Interest is Calculated:

The way interest is calculated on your savings account, credit cards, loans balances etc… are all the same.  There’s a daily calculation ran every night at midnight based on the BALANCE.  So, if you’re being charged a higher interest rate on your debt than what you’re making in savings, you’re renting your savings for not paying of the debt.

EXAMPLE: Let’s compare…

SAVINGS

$5,000 X 1% = $50.00 a year

$50.00 a year / 360 days = $0.13 a day earned interest ($0.138 to exact)

CREDIT CARD

$5,000 X 12.99% = $649.50 a year

$649.50 a year / 360 days = $1.80 a day charged interest ($1.804 to be exact)

SO… AT THE END OF THE DAY

You still paid $1.67 ($1.80 – $0.13)

$1.67 a day = $50.10 a month

$.167 a day = $609.55

HOWEVER

If you decide to move the $5,000 from savings and pay off the $5,000 credit card, you wouldn’t be paying any interest.  You wouldn’t be earning interest either but it’s far better than paying $1.67 EVERY. SINGLE. DAY.  But, to leave your money in savings, you’re paying interest to have it there.  And at what interest rate are we paying the bank to keep our savings in our savings account??? The difference in what we’re earning (1%) and what we’re being charged (12.99%).  In this example, we’re paying 11.99% to the banks to rent our savings.  STOP IT.

NOW…

Why don’t we just take the $5,000 in savings and pay the $5,000 credit card off?

ACCESS!  Or there lack of.  Credit cards are LIMITED on the access to the funds available when it comes to pay certain bills (home loans, car loans, other credit cards etc…) and when it comes to gaining immediate access to the cash without paying a cash advance fee and being charged an even higher interest rate.

THE SOLUTION

The Almight “Line of Credit”!

Lines of credit (LOC) are FAR MORE FLEXIBLE when it comes to accessing your available funds compared to a credit card.  LOC are still limited, like credit cards, when it comes to paying certain bills (home loans, rent, car loans, student loans etc…) HOWEVER, you always have access to the cash.  LOC DO ALLOW transfers of available funds to checking WITHOUT incurring cash advance fees.  Most LOC also allow ATM access without any additional fees as well.

NEXT WEEK

We’ll discuss how moving other debt balances to your LOC and how to properly use your LOC as your new checking account?  Crazy, right?!  I thought so too at first… but now I see why it makes sense.  And my objective is help you understand why as well.  Until then… Invest well.  Live well.

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